Reserve feared it was used as election pawn

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The Reserve Bank was sufficiently concerned about the
Coalition's election campaign claims about interest rates that it
asked the Australian Electoral Commission to investigate.

The Prime Minister, John Howard, put interest rates at the
centre of the election in October, campaigning on the claim that
they would always be lower under a Coalition government than under
Labor.

But voters, angry that some of the campaign claims were false
and misleading, sent some of the Coalition's leaflets to the
Reserve Bank and asked it to refer the material to the electoral
commission.

The Reserve Bank, the authority charged with setting official
interest rates, was deeply uneasy at the intense politicisation of
rates, but it remained silent throughout the election campaign for
fear of further politicising itself, officials said.

However, the central bank believed that some of the material in
the Coalition's campaign leaflets was exaggerated and that some was
factually wrong, the officials said.

However, the bank concluded that it was the role of the
electoral commission to police election campaigns. Reserve Bank
officials referred the Coalition's leaflets to the commission
during the six-week campaign and asked whether they breached any
regulations.

The commission responded that it was unable to take action to
halt a political party making policy claims or predictions even
where they might be false and misleading, the officials said.

The bank decided that it would have to allow the Coalition's
claims to be contested by other political parties, and that it
could not intervene without provoking headlines saying "Reserve
says PM wrong," a senior official said.

The bank was anxious to avoid this because it would make the
bank itself the centrepiece of the campaign, the official said.

One brochure published by the Liberal Party said: "Over 30 years
interest rates have risen to over 10 per cent under every Labor
Government Source: Reserve Bank of Australia."

The same statement, again sourced to the bank, featured in a
Liberal Party television ad aired frequently in the closing weeks
of the campaign.

The brochure also read: "See how much extra interest you will
have to pay every month when interest rates rise under Mark Latham"
and showed estimated mortgage repayments on a variety of loan sizes
up to 14 per cent using figures sourced to the bank.

The Coalition's claim that interest rates would rise if Labor
was elected was rejected by private economists during the election
campaign.

In his opening appearance of the campaign the Prime Minister,
John Howard, put rates squarely at the centre of the political
contest.

"It's an historic fact that over the last 30 years interest
rates under Labor governments have always gone up because Labor
governments spend more than they collect and drive budgets into
deficit," Mr Howard said.

"So it will be with a Labor Latham government. And it's been
calculated that if interest rates, under a future Labor government
led by Mr Latham, were to rise to the average of what they were
under previous Labor governments, that would add an additional $960
a month to the average mortgage of the average Australian
family."

He reached this figure by taking the average mortgage rate
during Labor's last time in government, 12.75 per cent, and
applying it to a mortgage of about $200,000.

Mr Latham immediately tagged Mr Howard's claim "one of the great
furphies of this campaign". He pledged to match Mr Howard's
commitments to keep rates low.

But Mr Howard argued that Labor would allow the unions to
campaign for wage rises, which would set up inflationary pressures
requiring the bank to raise interest rates. Labor never managed to
refute this argument.

Labor yesterday called for the Reserve Bank to issue an
explanatory statement after every board meeting, following its
decision to leave interest rates unchanged this week.